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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

FOR ANNUAL AND TRANSITION REPORTS PURSUANT

TO SECTIONS 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

(Mark One)

For the fiscal year ended December 31, 2004

OR

For the transition period from                      to                     

Commission File No. 001-16537

ORASURE TECHNOLOGIES, INC.

(Exact Name of Registrant as Specified in Its Charter)

(610) 882-1820

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $.000001 par value per share

(Title of Class)

Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x     No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes x     No ¨

State the aggregate market value of the voting and non-voting common equity held by nonaffiliates, computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the Registrant’s most recently completed second fiscal quarter (June 30, 2004): $417,434,893

Indicate the number of shares outstanding of each of the Registrant’s classes of common stock, as of March 1, 2005: 44,639,664 shares.

Documents Incorporated by Reference:

Portions of the Registrant’s Definitive Proxy Statement for the 2005 Annual Meeting of Stockholders are incorporated by reference into Part III of this Report.

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Statements contained in this Annual Report regarding future events or performance are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Our actual results could be quite different from those expressed or implied by the forward-looking statements. Factors that could affect our results are discussed more fully under the Sections entitled, “Forward-Looking Statements” and “Risk Factors” in Item 1 and elsewhere in this Annual Report. Although forward-looking statements help to provide complete information about us, readers should keep in mind that forward-looking statements may not be reliable. Readers are cautioned not to place undue reliance on the forward-looking statements.

PART I

ITEM 1.     Business.

Our business principally involves the development, manufacture, marketing and sale of oral fluid specimen collection devices using our proprietary oral fluid technologies, as well as other diagnostic products including immunoassays and other in vitro diagnostic tests that are used on other specimen types, and other medical devices. Our diagnostic products include tests which are processed in a laboratory and tests which are performed on a rapid basis at the point of care. These products are sold in the United States and internationally to various clinical laboratories, hospitals, clinics, community-based organizations and other public health organizations, distributors, government agencies, physicians’ offices, and commercial and industrial entities. One of our products is also sold in the United States over-the-counter or consumer retail market.

In vitro diagnostic testing is the process of analyzing oral fluid, blood, urine and other bodily fluids or tissue for the presence of specific substances or markers for infectious diseases, drugs of abuse or other conditions. In vitro diagnostic tests are performed outside the body, in contrast to in vivo tests, which are performed directly on or within the body. The substance or marker that a diagnostic test is intended to detect is generally referred to as an analyte.

Immunodiagnostic testing is the leading method of in vitro testing for antigens and antibodies. When an infectious disease is caused by pathogens, such as bacteria, viruses and fungi, or other substances are present, the body responds by producing an antibody. Substances that stimulate production of antibodies are generally referred to as antigens. An antibody binds specifically with an antigen in a lock-and-key fashion that initiates a biochemical reaction to attempt to neutralize and, ultimately, eliminate the antigen. The ability of an antibody to bind with a specific antigen provides the basis for immunodiagnostic testing.

Our Company was formed in May 2000 under Delaware law solely for the purposes of combining two companies, STC Technologies, Inc. (“STC” or “STC Technologies”) and Epitope, Inc. (“Epitope”), and changing the state of incorporation of Epitope from Oregon to Delaware. STC Technologies and Epitope were merged into our Company on September 29, 2000 (the “Merger”). Our principal offices are located at 220 East First Street, Bethlehem, Pennsylvania 18015, and our telephone number is (610) 882-1820.

Additional information about us can be found on our website. Our website address is www.orasure.com. We make available free of charge through a link provided at such website our Annual Reports on Form 10-K, our Quarterly Reports on Form 10-Q and our Current Reports on Form 8-K, as well as any amendments to those Reports. These Reports are made available as soon as reasonably practicable after they are filed or furnished to the Securities and Exchange Commission. Our Internet website and the information contained in or connected to that website are not intended to be incorporated by reference into this Annual Report.

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Products

The following is a summary of our principal products and their existing and pending approvals/clearances by the U.S. Food and Drug Administration (“FDA”) and commercial status:

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In addition to the above products, we also sell certain immunoassay tests and reagents for insurance risk assessment, substance abuse testing and forensic toxicology applications; an oral fluid Western blot HIV-1 confirmatory test approved by the FDA for confirming positive HIV-1 test results obtained from the use of our OraSure^® device; and the FDA 510(k) cleared Q.E.D.^® saliva alcohol test.

OraQuick^® Rapid Test

OraQuick^® is our rapid test platform designed to test an oral fluid, whole blood (i.e., both fingerstick and venous) or plasma sample for the presence of various antibodies or analytes. The device uses a porous flat pad to collect an oral fluid specimen. After collection, the pad is inserted into a vial containing a pre-measured amount of developer solution and allowed to develop. When whole blood or plasma is to be tested, a loop collection device is used to collect a drop of blood or plasma and mix it in the developer solution, after which the collection pad is inserted into the solution. In all cases, the specimen and solution then flow through the testing device where test results are observable in approximately 20 minutes. The OraQuick^® device is a screening test and requires a confirmation test where an initial positive result is obtained.

Our first product utilizing this technology was the OraQuick^® rapid HIV-1 antibody test, a rapid test for the presence of antibodies against HIV-1. In 2002, we received premarket approval of this test from the FDA for detecting HIV-1 in finger-stick whole blood samples and in 2003 we received FDA approval for use of the OraQuick^® test with venous whole blood samples. These approvals were based on data from clinical studies we performed, which indicated that the OraQuick^® test has sensitivity of 99.6% and specificity of 100%. Sensitivity is a measure of the accuracy for detecting positive specimens, and specificity is a measure of the accuracy for identifying negative specimens.

As a result of this FDA approval, the OraQuick^® test has been made available for use by nearly 40,000 locations in the United States certified under the Clinical Laboratory Improvements Amendments of 1988, or CLIA, to perform moderately complex diagnostic tests. Additionally, in January 2003, we received a waiver under CLIA for OraQuick^® which permits the use of this test by approximately 140,000 additional sites in the United States not certified under CLIA to perform moderately complex tests, such as outreach clinics, community-based organizations and physicians’ offices.

During the period March to June 2004, we received FDA approval for use of our new OraQuick^® test to detect antibodies to both HIV-1 and a second type of the HIV virus, known as HIV-2, in finger-stick and venous whole blood, oral fluid and plasma. In June 2004, we also received a CLIA waiver of this test for oral fluid, fingerstick whole blood and venous whole blood. We named this new test OraQuick^® ADVANCE^™.

In mid-July 2004, we received data from an investigational clinical trial suggesting a higher rate of unconfirmed positive results from the use of our OraQuick^® HIV-1/2 test in oral fluid samples than was shown in the clinical data that we compiled in support of our FDA approval of an oral fluid claim, including data from Company-sponsored trials and independent Centers for Disease Control and Prevention (“CDC”) studies. Similar results were not indicated for blood samples tested with the device. We performed a technical and procedural assessment to understand this situation and delayed the launch of the OraQuick^® ADVANCE^™ HIV-1/2 test, which was originally scheduled for August of 2004, until the assessment was completed. Based on the results of this assessment, we determined that the OraQuick^® ADVANCE^™ test performed within specifications, and we commercially launched this product in October 2004.

We believe that the OraQuick^® ADVANCE^™ device, because it is approved for detecting antibodies to both HIV-1 and 2 in fingerstick and venous whole blood, oral fluid and plasma samples, will provide a significant competitive advantage in the market for rapid HIV testing in the United States. Demand for OraQuick^® ADVANCE^™ has quickly grown since the launch of that product, and it is our intent to convert all customers to this product and ultimately stop manufacturing and selling the OraQuick^® HIV-1 test.

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In April 2003, the CDC announced a new four-part initiative for HIV testing and diagnosis, which is intended to increase the use of rapid HIV testing as part of routine medical care. Under this program, the CDC purchased 250,000 OraQuick^® devices during 2003, 250,000 devices during 2004, and 209,000 additional devices for delivery in 2005.

In August 2004, the Substance Abuse and Mental Health Services Administration (“SAMHSA”) placed an order to purchase $4.0 million of our OraQuick^® ADVANCE^™ tests and HIV confirmatory test services. The OraQuick^® tests are expected to be deployed by SAMHSA to over 22,000 substance abuse treatment and prevention sites throughout the United States. We are discussing an amendment to this contract with SAMHSA, which is expected to increase the number of OraQuick^® ADVANCE^™ tests purchased and eliminate the confirmatory test component of the order. We expect that all tests ordered by SAMHSA will be fully deployed in 2005.

The OraQuick^® device is also being used in the CDC’s Mother-Infant Rapid Intervention at Delivery Project (MIRIAD) to test pregnant women in five U.S. metropolitan areas. The goal of this project is to identify those individuals who would benefit from the administration of nevirapine, a drug used to reduce mother-to-child HIV transmission. In September 2003, the CDC reported that, based on data from the MIRIAD study, the use of the OraQuick^® test at the point of care provided test results four times faster than when the OraQuick^® test was used in a laboratory setting. As a result, the study found that rapid HIV testing enables healthcare professionals to determine the HIV status of a mother and administer antiretroviral drugs to both mother and child more quickly than traditional laboratory tests, thereby reducing the chances of mother-to-child transmission of HIV.

Finally, the OraQuick^® device has been selected for use in the CDC’s LIFE Initiative, an international effort to address the AIDS epidemic in certain African countries. This initiative focuses on areas such as preventing mother-to-child transmission, secondary transmitted disease prevention, HIV prevention for youth, and blood safety systems.

OraSure^®/Intercept^® Collection Devices

Our OraSure^® oral fluid collection device is used in conjunction with screening and confirmatory tests for HIV-1 antibodies and other analytes. This device consists of a small, treated cotton-fiber pad on a handle that is placed in a person’s mouth for two to five minutes. The device collects oral mucosal transudate (“OMT”), a serum-derived fluid that contains higher concentrations of certain antibodies and analytes than saliva. As a result, OMT testing is a highly accurate method for detecting HIV-1 infection and other analytes.

We believe that oral fluid testing has several significant advantages over blood or urine-based systems for infectious disease testing, for both health care professionals and the individuals being tested. These advantages include eliminating the risk of needle-stick accidents, providing a noninvasive collection technique, requiring minimal training to administer, providing rapid and efficient collection in almost any setting, and reducing the cost of administration by a trained health care professional.

We have received premarket approval from the FDA to sell the OraSure^® collection device for use with a laboratory-based enzyme immunoassay (“EIA”) screening test for HIV-1 antibody detection. This EIA screening test has been approved by the FDA for use with our OraSure^® device and is manufactured and sold by bioMerieux, Inc. (“BMX”). During 2004, we completed clinical trials with BMX as part of an application to obtain FDA approval of the use of a new EIA screening test for HIV-1 with an OraSure^® device. The FDA submission is expected to be made by BMX during the first quarter of 2005.

HIV-1 antibody detection using the OraSure^® collection device involves three steps:

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A trained health care professional then conveys test results and provides appropriate counseling to the individual who was tested. We have also received FDA 510(k) clearance for use of the OraSure^® collection device with EIAs to test for cocaine and cotinine (a metabolite of nicotine) in oral fluid specimens primarily for insurance risk assessment purposes.

A collection device that is substantially similar to the OraSure^® device is sold under the name Intercept^®, and is used to collect OMT for oral fluid drug testing. We have received FDA 510(k) clearance to use the Intercept^® collection device with laboratory-based EIAs to test for drugs of abuse commonly identified by the National Institute for Drug Abuse (“NIDA”) as the NIDA-5 (i.e., cannabinoids (marijuana), cocaine, opiates, amphetamines/methamphetamines, and phencyclidine (“PCP”)), and for barbiturates, methadone and benzodiazepines. Each of these EIA’s is also FDA 510(k) cleared for use with the Intercept^® device.

We believe that the Intercept^® device has several advantages over competing urine and other drugs of abuse testing products, including its lower total testing cost, its non-invasive nature, safety, mobility and accuracy, the ease of maintaining a chain-of-custody, the treatment of test subjects with greater dignity, no requirement for specially-prepared collection facilities, and difficulty of sample adulteration. The availability of an oral fluid test is intended to allow our customers to test for drug impairment on demand, eliminate scheduling costs and inconvenience, and thereby streamline the testing process.

Histofreezer^® and Freeze Off^™

The Histofreezer^® cryosurgical removal system is a low-cost alternative to liquid nitrogen and other methods for removal of warts and other benign skin lesions by physicians. The Histofreezer^® product mixes two environmentally friendly cryogenic gases in a small aerosol canister. When released, these gases are delivered to a specially designed foam bud, cooling the bud to –50°C. The frozen bud is then applied to the wart or lesion for 15 to 40 seconds (depending on the type of lesion) creating localized destruction of the target area by freezing. We have received 510(k) clearance for use of the Histofreezer^® product to remove common warts and eight other types of benign skin lesions.

In February 2003, we received FDA 510(k) clearance to market and sell a cryosurgical product similar to Histofreezer^® in the retail or over-the-counter market for the removal of common and plantar warts only. This product is being distributed under the name Freeze Off^™ by Medtech Holdings, Inc., the owner of the Compound W^® line of wart removal products.

Immunoassay Tests and Reagents

We develop and sell immunoassay tests in two formats, known as MICRO-PLATE and AUTO-LYTE^®, to meet the specific needs of our customers.

In a MICRO-PLATE kit, the sample to be tested is placed into a small plastic receptacle, called a microwell, along with the reagents. The result of the test is determined by the color of the microwell upon completion of the reaction. Controlling the reaction involves the use of a variety of reagents by laboratory personnel. Test results are analyzed by any of a variety of commercially available laboratory instruments, which we may also provide to our laboratory customers. MICRO-PLATE tests can be performed on commonly used instruments and can detect drugs in urine, serum, and sweat specimens. MICRO-PLATE tests are also used as part of the Intercept^® product line to detect drugs of abuse in oral fluid specimens.

AUTO-LYTE^® tests are sold in the form of bottles of liquid reagents. These reagents are run on commercially available laboratory-based automated analytical instruments, which are manufactured by a variety

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of third parties. AUTO-LYTE^® is typically used in high volume, automated, commercial reference insurance laboratories to detect certain drugs or chemicals in urine. Test results are produced quickly, allowing for high throughput.

Whenever possible, we enter into multi-year sales agreements with our customers. These agreements generally are entered into with a laboratory that has agreed to purchase a minimum number of tests over a two- to-five-year period. We also offer these customers the option of a reagent rental agreement under which we sell the tests at an increased price over a fixed period of time, which includes an additional equipment charge in exchange for providing the customer with the required analytical laboratory equipment. We obtain this equipment from third party vendors.

Western Blot HIV-1 Confirmatory Test

We sell an oral fluid Western Blot HIV-1 confirmatory test that received premarket approval from the FDA in 1996. This test uses the original specimen collected with the OraSure^® oral fluid collection device to confirm positive results of initial oral fluid HIV-1 EIA screening tests. The oral fluid Western Blot HIV-1 confirmatory test is marketed under an exclusive arrangement with BMX.

Q.E.D.^® Saliva Alcohol Test

Our Q.E.D.^® saliva alcohol test is a point-of-care test device that is a cost-effective alternative to breath or blood alcohol testing. The test is a quantitative, saliva-based method for the detection of ethanol, and has been cleared for sale by the FDA and the U.S. Department of Transportation (“DOT”). In 1998, the product also received a CLIA waiver.

Each Q.E.D.^® test kit contains a collection stick that is used to collect a sample of saliva and a disposable detection device that displays results in a format similar to a thermometer. The Q.E.D.^® device is easy to operate and instrumentation is not required to read the result. The product has a testing range of 0 to 0.145% blood alcohol, and produces results in approximately two minutes.

UPlink^®

Based on our proprietary Up-Converting Phosphor Technology (UPT^™), UPlink^® is a point-of-care system comprised of an oral fluid sample collector, test cassette, and analyzer, which is designed to deliver instrument-read results for simultaneously detecting the full NIDA-5 panel of tests – cocaine, methamphetamines/amphetamines, PCP, opiates and marijuana, in a single oral fluid sample. The Company believes the UPlink^® point-of-care oral fluid detection system could offer several important advantages over traditional lab-based urine drug tests, including reduced costs and turn around time, the ability to perform accurate drug testing for a full NIDA-5 panel virtually anywhere, treatment of test subjects with greater dignity, and reduced risk of sample adulteration.

In September 2003, we filed an application with the FDA for 510(k) clearance of our UPlink^® rapid oral fluid drugs of abuse detection system. In March 2004, the FDA responded to our application by indicating that additional performance data would be needed in order to obtain clearance. We are evaluating the FDA’s requirements and whether any modifications to our UPlink^® system will be required in order to provide that data. At this time, we cannot predict if or when we will be able to resubmit an application for 510(k) clearance of the UPlink^® system. However, the absence of 510(k) clearance does not affect our ability to sell the UPlink^® system internationally.

In March 2000, we signed a research and development agreement with Dräger Safety AG & Co. KGaA (“Dräger”), a European manufacturer and supplier of medical and safety technology products for health care and industrial applications. This agreement provided for the development of the UPlink^® system for rapid detection of drugs of abuse in oral fluid. Under this agreement, Dräger has exercised an option to become our exclusive

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distributor of this product in Europe and certain other countries to law enforcement officials for rapidly assessing whether an operator or passenger in a motor vehicle is under the influence of one or more drugs of abuse (the “roadside market”) and ultimately to certain military, criminal justice, and workplace testing markets. In April 2004, we commercially launched the UPlink^® system with Dräger in the roadside market in Europe and other countries.

As part of a recent strategic review of our business, we concluded that the roadside drugs of abuse testing market may not be as attractive as a number of our other opportunities we can pursue. Consequently, we are exploring our options with respect to the UPlink^® system, including transferring the manufacturing of the product to Dräger, which is permitted under our agreement. If we enter into such an arrangement with Dräger, we would expect to receive royalties on future sales of the product by Dräger while retaining the rights to the workplace testing and possibly other markets.

Products Under Development

OraQuick^® Platform

We believe that OraQuick^® has significant potential as a point-of-care testing platform for physicians’ offices, hospitals, and other markets. We believe that OraQuick^® provides a platform technology that can be modified for detection of a variety of infectious diseases in addition to HIV, such as viral hepatitis and certain sexually transmitted diseases. We are currently in negotiations with Ortho-Clinical Diagnostics and Chiron Corporation to obtain patent license rights that would enable us to develop and sell a test for detecting antibodies to the Hepatitis C virus using the OraQuick^® platform.

OraSure^®/Intercept^® Applications

Oral mucosal transudate, or OMT, contains many constituents found in blood and serum, although in lower concentrations. We believe the OraSure^® and Intercept^® devices are a platform technology with a wide variety of potential applications, where laboratory testing is available. For example, the OraSure^® device may be useful for the collection of a variety of antibodies or markers for infectious diseases or conditions in addition to HIV-1, such as antibodies to viral hepatitis.

In 2004, SAMHSA issued proposed regulations for oral fluid drug testing for federal workers. When issued in final form, these regulations may require certain modifications to our Intercept^® product in order to permit its use by federal workers. As a result, we are attempting to develop modifications to the Intercept^® collection device that we anticipate may be required by these regulations or are otherwise likely to be desired by our customers. We are also currently developing additional drugs of abuse assays for use with our Intercept^® collection device.

UPT^™ Development

During 2004 and for several prior years, much of our research and development efforts were focused on UPT^™ and the first UPT^™ application to be commercialized, our UPlink^® rapid, point-of-care system for detecting drugs of abuse in oral fluid.

UPT^™ is a proprietary label detection platform that uses phosphor particles to detect minute quantities of various substances. UPT^™ utilizes the same particle shell that is coated onto a television screen, but the internal chemistry of the particle has been changed. These changes result in a particle that is excited by infrared light as compared to an ultraviolet light source for television screens. With assistance from our research partners, we have developed phosphorescent particles that up-convert infrared light to visible light, which we believe may be a label technology with broad applications. During 2004, research was conducted to decrease particle size and increase the light-emitting efficiency of the particles.

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We are participating in the third year of a $4.2 million, four-year grant for research and development of saliva/oral fluid-based diagnostic technologies, awarded by the National Institutes of Health (the “NIH”) to the University of Pennsylvania. The grant covers basic research in the following three main areas:

The research plan under the grant contemplates achieving these goals through the use of our UPlink^® rapid detection system.

Our portion of funding under the grant was approximately $400,000 in the first year, $350,000 in the second year, and $308,000 in the third year and if the grant is renewed by the NIH as we expect, approximately $300,000 in the last year. Payments under the grant are subject to availability of funding from the NIH and satisfactory progress of the research and development project.

Although we believe that UPT^™ may have several potential applications for in vitro diagnostics, we have not been able to successfully develop potential UPT^™ applications other than the UPlink^® application for rapid detection of drugs of abuse in oral fluid. We are evaluating the viability of UPT^™ as a technology platform, and a final decision as to the future of UPT^™ has not been made. Accordingly, there can be no assurance that we will develop additional UPT^™ applications or continue to invest in research and development for UPT^™.

Business Strategy

During the fourth quarter of 2004, we completed an intensive review and refinement of our strategic business plans. As a result, we have adopted a multi-part growth strategy, pursuant to which we intend to leverage our extensive diagnostic experience in order to maximize the available opportunities from our existing products and technologies, and supplement our existing product pipeline by accessing other technologies and products. We intend to follow a disciplined approach to maximize the value of our business for the benefit of our stockholders.

Our overall vision is to become a recognized global leader focused on providing innovative diagnostic solutions that add substantial value to existing and emerging healthcare needs. In order to achieve this vision, our business strategy will include the following key elements:

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Research and Development

In 2004, our research and development activities focused on the continued development of the UPlink^® analyzer, test cassette and collector, the development of the UPlink^® drugs of abuse assays, clinical trials and regulatory efforts related to claims for HIV-2, oral fluid and plasma for our OraQuick^® ADVANCE^™ test, CLIA waiver of our OraQuick^® ADVANCE^™ HIV-1/2 test and improvements to certain of our existing products.

We supplement our own research and development activities by funding external research. We have funded research at Leiden University and certain other entities, and may continue funding external research.

Research and development expenses totaled approximately $6.1 million in 2004, $8.0 million in 2003 and $8.3 million in 2002. These expenses include the costs associated with research and development, regulatory affairs and clinical trials.

Sales and Marketing

We attempt to reach our major target markets through a combination of direct sales, strategic partnerships, and independent distributors. Our marketing strategy is to raise awareness through a full array of marketing activities, which include trade shows, print advertising, special programs and distributor promotions, to support sales in each target market.

We market our products in the United States and internationally. Revenues attributable to customers in the United States amounted to $47.8 million, $35.9 million and $28.1 million in 2004, 2003 and 2002, respectively. Revenues attributable to international customers amounted to $6.2 million, $4.6 million and $3.9 million, or 11%, 11% and 12% of our total revenues, in 2004, 2003 and 2002, respectively.

Insurance Risk Assessment

We currently market the OraSure^® oral fluid collection device for use in screening life insurance applicants in the United States and internationally to test for three of the most important underwriting risk factors: HIV-1, cocaine and cotinine (a metabolite of nicotine). Devices are sold to insurance testing laboratories, including LabOne, Inc., Heritage Labs and Clinical Reference Laboratory. These laboratories in turn provide the devices to insurance companies, usually in combination with testing services.

We also maintain a direct sales force that promotes use of the OraSure^® device directly to insurance companies for life insurance risk assessment. Insurance companies then make their own decision regarding which laboratory to use to supply their collection devices and testing services. Our OraSure^® Western Blot confirmatory test is distributed through BMX to laboratories and is used to confirm oral fluid specimens that initially test positive for HIV-1.

Because insurance companies are in various stages of their adoption of the OraSure^® device, there exists a wide range of policy limits where the product is being applied. Some insurance companies have chosen to extend

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their testing to lower policy limits where they did not test at all before, while others have used OraSure^® to replace some of their blood and urine-based testing. In general, most of our insurance company customers use the OraSure^® device in connection with life insurance policies having face amounts of up to $250,000, with some customers using the device for policies of up to $500,000 in amount. One large insurance customer uses the OraSure^® device with policies having face amounts up to $3 million.

Our sales force continues to encourage additional insurance companies to use OraSure^® and to extend the use of the product by existing customers. We believe there are several factors which will help expand the use of our device, including increasing acceptance of the reliability of oral fluid testing, the high quality of test results, the low cost of oral fluid testing relative to blood tests, the ease of use of the OraSure^® device, and the development of new oral fluid assays for use with our OraSure^® device for detecting substances or conditions that affect life insurance risk assessment.

We also sell our AUTO-LYTE^® and MICRO-PLATE assays and reagents in the insurance testing market directly to laboratories, including LabOne, Heritage Labs and Clinical Reference Laboratory.

Infectious Disease Testing

Our sales personnel market the OraSure^® oral fluid collection device, separately and as a kit in combination with laboratory testing services (as described below), and both the OraQuick^® ADVANCE^™ HIV-1/2 and OraQuick^® HIV-1 antibody tests directly to customers in the public health market for HIV testing. This market consists of a broad range of clinics and laboratories and includes states, counties, and other governmental agencies, the CDC, SAMHSA, colleges and universities, correctional facilities and the military. There are also a number of organizations in the public health market such as AIDS service organizations and various community-based organizations set up primarily for the purpose of encouraging and enabling HIV testing.

To better serve our public health customers, we have entered into agreements with LabOne and Heritage Labs to provide prepackaged OraSure^® test kits, with prepaid laboratory testing and specimen shipping costs included. We also sell the OraSure^® and OraQuick^® devices in the international public health markets.

In June 2002, we entered into an agreement under which Abbott Laboratories was appointed as the co-exclusive distributor of the OraQuick^® rapid HIV-1 antibody test in the United States, focusing primarily on the hospital and physicians’ office markets. This relationship was later converted to a non-exclusive distributorship in early 2004. In February 2005, we entered into a new agreement for the distribution of the OraQuick^® ADVANCE^™ HIV-1/2 test, appointing Abbott as our exclusive distributor in the U.S. hospital market and as a non-exclusive distributor in the U.S. physicians’ office marketplace. As our exclusive distributor to hospitals, Abbott will sell OraQuick^® ADVANCE^™ to federal hospitals under the terms of our Federal Supply Schedule on file with the General Services Administration. Under this new agreement, we have retained exclusive rights for all other markets including sales to the public health and criminal justice markets, the military, the CDC, SAMHSA and other governmental agencies. In February 2005, we terminated the distribution agreement with Abbott for the OraQuick^® rapid HIV-1 antibody test and expect Abbott to transition its customers to OraQuick^® ADVANCE^™.

In 2004, we deployed a small sales force that provided direct access to and marketing support for the hospital market for our OraQuick^® test. This sales force successfully sold our OraQuick^® tests into the hospital market and will now support and work with Abbott to maximize the penetration of OraQuick^® ADVANCE^™ in this market.

Substance Abuse Testing

Our substance abuse testing products are marketed to laboratories serving the workplace testing, forensic toxicology, criminal justice, and drug rehabilitation markets. The forensic toxicology market consists of 250 –

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300 laboratories including federal, state and county crime laboratories, medical examiner laboratories, and reference laboratories. The criminal justice market consists of a wide variety of entities in the criminal justice system that require drug screening, such as pre-trial services, parole and probation officials, police forces, drug courts, prisons, drug treatment programs and community/family service programs.

We have entered into agreements for the distribution of Intercept^® collection devices and associated MICRO-PLATE assays for drugs-of-abuse testing in the workplace testing market in the United States and Canada through several laboratory distributors, including LabOne, Quest Diagnostics and Clinical Reference Laboratory, and internationally for workplace and forensic toxicology testing through Bio-Rad Laboratories, Altrix HealthCare, plc, and other distributors. We assist our laboratory customers in customizing their testing services by selling them equipment required to test oral fluid specimens collected with the Intercept^® device.

We also distribute our Q.E.D.^® saliva alcohol test primarily through various distributors. The markets for alcohol testing are relatively small and fragmented with a broad range of legal and procedural barriers to entry. Markets range from law enforcement testing to workplace testing of employees in safety sensitive occupations. The Q.E.D.^® test has been successfully adopted by end users in the petroleum, heavy construction, trucking, and retail industries because it is a cost-effective, portable, easy-to-administer and quantitative testing method. Typical usage situations include pre-employment, random, post-accident, reasonable-cause, and return-to-duty testing.

Cryosurgical Systems

We sell Freeze Off^™, a product similar to Histofreezer^®, in the over-the-counter market in the U.S. pursuant to a distribution agreement with Medtech, the owner of the Compound W^® line of wart removal products and a wholly-owned subsidiary of Prestige Brands Holdings, Inc.

Most of our Histofreezer^® sales occur in the United States to distributors that, in turn, resell the product to more than 150,000 primary care physicians and podiatrists in the United States. Major U.S. distributors include Cardinal Healthcare, McKesson HBOC, Physicians Sales & Service, AmerisourceBergen Corporation, and Henry Schein. Internationally, we established a sales office in Reeuwijk, The Netherlands, and we are selling the Histofreezer^® product through a dealer network in more than 20 countries worldwide.

International Markets

We sell a number of our products into international markets primarily through distributors with knowledge of their local markets. Principal markets include physicians’ offices, insurance risk assessment, substance abuse, public health, and laboratory testing.

We assist our international distributors in registering the products and obtaining required regulatory approvals in each country, and we provid